Need help with ECO two problems!! Thank you so much!!! 1. Show shift the short-
ID: 1190158 • Letter: N
Question
Need help with ECO two problems!! Thank you so much!!! 1. Show shift the short- run aggregate supply curve or the aggregate demand curve to show the short-run impact of the investment tax credit. 2. fill blank: 1.aggregate demand/ supply blank 2: right/ left blank3. Rise above/ fall below blank4. Rise above/ fall below blank5. Rise above/ fall below 1. Draw graph 2. fill in blanks. Blank1. Adjust upward/ remain the same/ adjust downward blank2. Short-run aggregate supply/ aggregate demand blank3. Left/right. Blank4. Remains the same/ increase: decreases blank5. Rise above/ returns to/ falls below blank6. Returns to/ falls below/ rises above The following graph shows the economy in long-run equilibrium at the price level of 120 and potential output of $300 billion. Suppose the government implements a large investment tax credit, cousing investment spending to increase. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the investment tax credit. Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just try again and drag it a little farther. PRICE LEVEL 240 AS 200 160 120- 80 40 AD 00 200 300 400 500 600 REAL GDP (Billions of dollars) curve to the potential In the short run, the increase in investment spending associated with the new tax credit shifts the , causing the price level to the previous price level and the quantity of output to output. The investment tax credit will cause the unemployment rate to the natural rate of unemployment in the short run. rise above fall belowExplanation / Answer
(a)
In short run, increased investment (caused by tax credit) will shift the AD curve to the right by increasing aggregate demand, causing price level to rise above the previous level & quantity of output to rise above potential output. The tax credit will cause unemployment to fall below natural unemployment rate.
(b)
In the long run, the increased AD will induce producers to supply more, the AS curve will shift rightward in long run & the economy will return to the natural level.
Price level will adjust downward & Short run aggregate supply will shift to right.
In the long run, as result of tax credit, price level increases, quantity of output returns to potential output & unemployment rate returns to natural rate of unemployment.